Cloud cuts everyone's cost of ownership

Cloud cuts everyone's cost of ownership

Summary: Conventional software perpetuates a scandalous waste and duplication of resources. SaaS and cloud platforms drastically compress the aggregate cost of ownership and operation, delivering better value for less cost.

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Speaking in the opening keynote of SIIA OnDemand in San Jose this morning, SuccessFactors CEO Lars Dalgaard let slip a statistic that set several attendees a-twittering. He revealed that the SaaS provider's multi-tenant application infrastructure supports its 2,850+ customers and 5.4+ million users on just 150 servers.

The ability to achieve such enormous economies of scale demonstrates the huge power of multi-tenancy and gives the lie to the line, so often peddled by the conventional on-premise software vendors, that SaaS is just a delivery option. SuccessFactors would not be able to run its operations with anything like the same low overhead if it had to separately maintain the ability to ship on-premise instances of its software.

The conventional software model perpetuates a scandalous wastage and duplication of resources. Every single customer of an on-premise platform or application installs their own custom implementation. Every one of those implementations builds in enough spare capacity to support unexpected usage spikes and peak load at the organization's busiest period of the year — yet remains idle the rest of the time. Its IT staff acquire a huge store of learnings and experiences that are solely revelant to their own environment. All of those needless investments and expenses are replicated across thousands of an ISV's customer base. The aggregate waste adds up to a burdensome cost of ownership spread across its customer.

With SaaS, the customer base shares a single infrastructure, eliminating all of the redundant capacity and wasted effort of the on-premise model. The aggregate cost of ownership is dramatically reduced, as illustrated in the diagram above. Those lower costs translate into savings for customers as well as better margins for providers. With cloud platforms and PaaS, where ISVs share a common infrastructure, even more waste and cost is squeezed out.

These savings aren't just a one-time phenomenon. Having all its customers on a single, shared infrastructure allows a SaaS ISV or cloud provider to continually analyze usage and performance so that it can carry on innovating to enhance the value it delivers. Salesforce.com recently announced it is moving to a maximum five minutes of customer downtime for scheduled upgrades. I met today with LiveOps, a provider of on-demand call center services, which manages its upgrades in a way that means customers suffer no downtime at all. It achieves a stellar four nines of uptime including scheduled maintenance. And of course this is within infrastructures whose security and firewall strength is far superior to those of most enterprise data centers — and which is constantly tested and validated by customers and prospects to an extent no single enterprise data center experiences.

This is what the cloud delivers: hardened, high-performance, reliable infrastructure far superior to that of any single enterprise — at an aggregate cost of ownership and operation far lower than those enterprises would collectively spend across hundreds or thousands of separate private infrastructures to achieve a much worse result.

Disclosure: the diagram shown is excerpted from Redefining software platforms — How PaaS changes the game for ISVs, an analyst report produced with funding from Intuit Partner Platform.

Topics: Cloud, Data Centers, Emerging Tech

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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22 comments
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  • Just because you say it, doesn't make it so

    "This is what the cloud delivers: hardened, high-performance, reliable infrastructure far superior to that of any single enterprise ? at an aggregate cost of ownership and operation far lower than those enterprises would collectively spend across hundreds or thousands of separate private infrastructures to achieve a much worse result."

    Really? So all those enterprises don't mind that their support will be shared across many thousands of users, that their data is being kept by someone else, that if their connection goes down their business does too and they are linking the success of their company to the viability of a cloud company.

    Have you used a cloud app lately? The ones that are slow, unresponsive and lack tons of features? Doesn't sound superior does it?

    Or have you looked at real life examples? Try World of Warcraft around 13 million users running 24/7 with an app that's a few levels of complexity beyond your current cloud apps (due to it having a desk top client and being complex ;-)). It still crashes occasionally, their service still goes down, as does gmail and other cloud vendors. I think Blizzard does a great job with WoW, but it the end it's only a game. Do I want to trust my business to a cloud vendor where i'm just one of hundreds of thousands of clients - no I don't think so and I have no idea where you got this idea of cloud reliability - that's a very long way off.
    tonymcs@...
    • And to your point sir...

      TonyMCS,

      You are right to point out all of these points. In reality, pure cloud Enterprise will not exist.

      Only for very small companies, with limited need of scope for their software needs.

      Not all software makes sense to live in the cloud, think of ERP. Think of MRP, Secure Analytics, Vitale Customer data that if in the wrong hands could be used to destroy a company.

      There are some applications that make sense. there are security holes, but get passed that for a bit as you can chalk that up to 'in-progress' and then you have service issues.

      Because there will be service issues, and there will be service issues with on-premise.

      That's why, for the current and next 5-8 year future I think you will see a Hyrbid Cloud Approach.

      Some Services, some applications in the Cloud. But the majority will still be on-premise, consuming cloud based services and software.

      That's why I believe in the Microsoft vision of Software+Services.

      Just my two cents on the matter...
      skillaid
      • I can't disagree more

        We have several clients that are 100% in the cloud. These clients utilize email, document management, DNS, storage and web in the cloud, among other applications. One of the clients even has full financial transactions happening in the cloud in SAS 70 II compliant environments.

        I will agree / admit that these clients are visionary and have the ability to be nimble and move into the cloud, unlike the large enterprises. But to say that large enterprise wouldn't adopt cloud 100% because of security and service issues is not true. It's my opinion, based on our experience, that if large enterprise companies could migrate 100% right now, the numbers would be much greater then you may think. The biggest reason the adoption will be slow for some of these companies is because, no matter what they do, the move at glacial speed. In all matters, not just technology.

        In all reality, the security and services issue are not any more or less pertinent in the cloud then they are in the local co-lo or in house data center. (Just for clarification, my point of view is coming from the IaaS arena more then PaaS or SaaS) IPSec needs to apply best practices in all scenarios or not a signal one will be worth the time and money it took to set them up.

        As far as outages go, the only reason we hear about Google or Amazon downtime is because they are in the spot light so much. It's been my experience over the years that apps and servers running in the local DC or co-lo are out of service with much more frequency the Google or Amazon have ever been.

        In the end, Cloud Computing will prevail in an enormous way. Not only with start ups and SMB/SME but all the way through large enterprise and local DC's are going to go the way of the Dodo for a lot of companies.

        Mike - CEO
        Cirrhus9
        http://www.cirrhus9.com
        mmichalik
        • "local DC's are going to go the way of the Dodo"

          Don't bet on it.

          There are PLENTY of reasons NOT to use cloud computing. Here's a few:

          1) Any HIPAA data.

          2) Any classified data.

          3) Any military data.

          4) Any R&D data.

          Then there is the scenario when the cloud provider goes out of business, and all of your data goes with it. It has already happened several times.

          The hospital/health sciences center I work in will never put patient data on someone else's servers, and our e-mail system is staying in house as well.

          Sorry Mike. Shouldn't make generalizations.
          IT_Guy_z
          • Think again

            DISA's RACE is no longer following, but is becoming a leader in cloud technology.

            Google is in the process of full FISMA certification, expected by the end of the calendar year.

            Amazon offers a cloud product, installed in your data center.

            You're going to contend that an enterprise whose primary line of business would expend the resources to match the reliability and security of a giant specialist? Well okay, but don't bet your company on it.
            IT_User
          • Well HP's CEO isn't too cracked up about the security of cloud computing.

            Read the first paragraph.

            http://blogs.zdnet.com/BTL/?p=26247&tag=trunk;content

            And he's trying to get everyone else to join in?
            IT_Guy_z
          • RE: local DC's are going to go the way of the Dodo

            IT_Guy_z,

            I'm really not making generalizations. That's why I stated "for a lot of companies".

            AWS has several large customers running HIPPA compliant applications in the cloud. So does GoGrid and, GoGrid's client, which is a major health care provider, puts their patient data in their cloud environment as well.

            The NIHST and AWS are working very closely to set standards for government data in the cloud.

            Ely-Lilly does a HUGE amount of their R&D work in the cloud already and we work very closely with the Pharma / Biotech industry, providing them with Qualified Machine Images (QMI's) so they can lay their FDA validation efforts on top of it, in the cloud.

            Classified data can be put into both the private and public clouds if the IPSec folks setting up the environment do their job correctly. The government uses cloud computing heavily already and it's only going to grow out even further.

            It's the wave of the future and crying foul about security is no longer a valid issue. Cloud computing is as secure as the people setting up the environment make it. Just like in any physical DC.

            Mike - CEO
            Cirrhus9
            http://www.cirrhus9.com
            mmichalik
    • This is just what I was thinking.

      In addition I'm sure there are a lot of details left out of the presentation to make it sound like nirvana.

      Any time someone pitches a story without any downside, or the other side if you will, you can bet it is more like propaganda as opposed to a quality discussion.

      There are so many downsides to the cloud, you data being wholesaled for starters, that any article that fails to touch on any of them needs to be thrown in the trash.

      I wish cloud providers the best. I even hope my competitors use it like there is no tomorrow. That would be the best thing for my company.
      bjbrock
  • RE: Cloud cuts everyone's cost of ownership

    It seems like virtualization makes those economies
    behind the cloud more possible, but my understanding
    is that most storage arrays are only able to utilize
    maybe 30-50% of their disks, as the software wasn't
    built with efficiency in mind, and that would seem to
    limit the efficiencies at the storage layer in a data
    center, even in a cloud data center.

    (Cynically thinking such array storage software was
    built with the purpose of selling more disk and
    services than necessary)
    eric.pederson@...
  • RE: Cloud cuts everyone's cost of ownership

    Really, constantly paying for something is cheaper then
    paying for it once. That's like saying that leasing is
    cheaper than buying; which it isn't unless you intend to
    trade every two or three years. And even then its
    debatable.
    shanedr
  • SMB customers will move to the cloud...

    SMB customers will move to the cloud because they will be unable to obtain credit or borrow money for their next round of premises-based servers and software. Most will be financing IT out of AR. We are already in a deflationary economy that could last the better part of a decade. SMB customers will move IT services to the cloud in order to survive. It will probably take the better part of a decade to complete the transition to cloud computing, but the march is on and there is no turning back.
    timwessels
  • RE: Cloud cuts everyone's cost of ownership

    The question of cloud security gets raised on every one of
    these blogs and it's a worthy debate, but it often misses
    the point.

    People & companies often feel safe having hold of their
    own data in their own data centre, but if you genuinely put
    your internal security practices under the spotlight the way
    that major cloud providers do every day, how well would
    they honestly stack up? Is entry to your server room
    biometrically controlled? Is it absolutely impossible for one
    of your sysads to stick a 5GB USB drive into a server and
    leave with thousands of customer records? Is maintaining
    infrastructure security what your business is best at?

    My grandad used to keep his life savings under his
    mattress, his logic being that sometimes banks collapse
    and lose people's money. My point is that a "feeling" of
    safety because you hold something in close proximity does
    not necessarily equate to genuine security.
    glenn.elliott@...
  • RE: Cloud cuts everyone's cost of ownership

    I do not like my stuff on anyone else's servers, period. Ever read the hotmail licence agreement?
    glaker@...
  • RE: i think it is true

    Cloud can reduce TCO. Today a small business owner can use (he can't own it, why should he own?)intelligent CRM or Payroll or HR tools as little as $1 per month. So I would say cloud computing and OnDemand software made <a href="http://www.greytip.in">intelligent solutions affordable</a>

    Sreekumar J
    Business Analyst
    js_analyst
  • More savings in labour costs

    Actually hardware counts for a rather small part of an IT solutions costs. Perhaps 10% maximum. (I work for a hosting company and price calculations is one of my daily tasks.) The big costs are the licenses and IT support personnel.

    So with SaaS solutions the biggest effect is not in the hardware savings, but in the savings of IT support personnell. If the end-customer organizations manage to standardize their processess and fit into the standard practices that a SaaS solution offers then there will be much less need for specialists installing/maintaining/upgrading the "tailor-made" solutions.
    mridala
  • Of course, you can't have cost of ownership if you don't have ownership.

    Of course, you can't have cost of ownership if you don't have ownership.

    . . . and who the heck cares about "duplication of infrastructure?" It's not as if there's a shortage of computing power or space.

    Frankly, I'd rather have automation rather than consolidation.
    CobraA1
  • RE: Cloud cuts everyone's cost of ownership

    The analogy you're drawing is not totally accurate.
    You are comparing a car lease with SaaS. In the case
    of a car lease (the way you think about it), you rent
    a car for a period of time and get exclusive usage for
    this period of time. This is a bit like the 1990s ASP
    model which made very little financial sense. Now,
    SaaS is a lot more about reuse of resources (in a
    multitenant architecture anyway). It's more like you
    renting a car to go to work and then somebody using it
    afterwards. A lot more people can reuse the same
    resources, therefore costs can be lower. (That being
    said, I'm just using your analogy but really analogies
    are most of time debatable).

    The point is that with SaaS (MT) you have more people
    using the same resources and therefore you should have
    economies of scale...ergo savings.
    mbea
  • RE: Cloud cuts everyone's cost of ownership

    So, cloud computing is the IBM SNA network for the 21st century dressed up with a GUI interface...Right?
    larry.fosse@...
  • This clarifies also what Microsoft is doing with Azure

    Microsoft Azure makes accesing records of a database, etc. different to what we are accustomed. At first it was: Huh? for me, but the way I conceptualize it is that you are atomizing the different quantas of processing and storage: You don't own a server, with a SQL database, but just the records of data of your app... that are in a soup with the records of everybody else...
    Roque Mocan
  • Get your head out of the clouds!

    This is nothing more than a corporate tactic to own your IT. You will be paying not only for the IT that you currently have, but for the vendor's profit margin on top of that. I really hope those that have lived through central computing infrastructure have the power in their organizations to steer clear of this. Think of it this way: once you're in the cloud, what's to stop the vendor from creating sky-high costs? You're locked in AND you're on their equipment. Remember the "crystal palaces"? Held captive to the whims of the chosen few? Lets not do this again!
    happyharry_z